Optimism over Reckon well founded

the bare numbers of
Reckon
’s recently released half-yearly results give little indication of the reasons for the surging optimism among holders of stock in the small business software provider.

Three factors which made no impact on the books have caused a number of tech stock watchers to tip Reckon as a good value play in the medium term.

The most obvious driver of optimism is an agreement it signed with global tax software group Intuit. Reckon has always sold Intuit’s products in Australia, but now Intuit is going to return the favour, selling Reckon’s software to its significant customer base in the United States and Canada.

Reckon shares rose close to 5 per cent in the two days following the announcements as investors recognised the potential for growth if the partnership goes well.

Second is the admission by chief executive
Clive Rabie
that Reckon was giving serious consideration to having a tilt at buying
Melbourne IT
’s small business division. Reckon surprised the market and Melbourne IT in May when it took a $7.3 million strategic investment in the company, which equated to a 4.97 per cent stake.

Mr Rabie said that if a trial in expanding its offerings to include exchange hosting, web hosting and domain names as an online service, alongside Melbourne IT, proved successful then a further transaction could be on the cards.

While that would offer investors a further indication of fresh growth options, it should also be noted that Melbourne IT chief executive Theo Hnarakis greeted Mr Rabie’s initial overtures with a scepticism that suggested a deal wouldn’t immediately materialise.

Third is the apparently inflated price paid by Bain Capital last month for Reckon’s main rival, MYOB. Bain paid $1.2 billion for MYOB, which was previously bought by Archer Capital at the beginning of 2009 and delisted from the ASX, with its market cap well below the $560 million price.

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Investors are now asking whether Reckon is worth significantly more than its $313.4 million market cap.

“The comparison between the two companies is not entirely like for like, but the MYOB deal certainly makes Reckon look very cheap," Select Equities analyst Mark Southwell-Keely said. “People will now be looking at them and reassessing the price because in many ways I think it is better run than MYOB operationally."

Mr Rabie said Reckon would be an attractive business for private equity or an international rival.